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A payment is the tender of something of value, such as money or its equivalent, by one party (such as a person or company) to another in exchange for goods or services provided by them, or to fulfill a legal obligation or philanthropy. The party making the payment is commonly called the payer, while the payee is the party receiving the payment. Whilst payments are often made voluntarily, some payments are compulsory, such as payment of a fine.
Payments can be effected in a number of ways, for example:
In general, payees are at liberty to determine what method of payment they will accept; though normally laws require the payer to accept the country's legal tender up to a prescribed limit. Payment is most commonly affected in the local currency of the payee unless the parties agree otherwise. Payment in another currency involves an additional transaction for the conversion. The payee may compromise on a debt, i.e., accept part payment in full settlement of a debtor's obligation, or may offer a discount, E.G: For payment in cash, or for prompt payment, etc. On the other hand, the payee may impose a surcharge, for example, as a late payment fee, or for use of a certain credit card, etc.
Payments are frequently preceded by an invoice or bill, which follows the supply of goods or services, but in some industries (such as travel and hotels) it is not uncommon for pre-payments to be required before the service is performed or provided. In some industries, a deposit may be required before services are performed, which acts as a part pre-payment or as security to the service provider. In some cases, progress payments are made in advance, and in some cases part payments are accepted, which do not extinguish the payer's legal obligations. The acceptance of a payment by the payee extinguishes a debt or other obligation. A creditor cannot unreasonably refuse to accept a payment, but payment can be refused in some circumstances, for example, on a Sunday or outside banking hours. A payee is usually obligated to acknowledge payment by producing a receipt to the payer. A receipt may be an endorsement on an account as "paid in full". The giving of a guarantee or other security for a debt does not constitute a payment.
Progress payments or instalment payments are often used to allow payment in stages for the construction of buildings or other assets.Judicial Committee of the Privy Council, His Majesty the King (Appeal No. 76 of 1945) v Dominion Engineering Company Limited (Canada) [1946] UKPC 36 (10 October 1946), accessed 5 January 2024 Instalment payments were planned for in the case of Cadogan Petroleum Holdings Ltd v Global Process Systems LLC, where the latter would pay in instalments for the acquisition of two gas plants. Their contract stated that ownership would not pass until the payments were complete and that any failure to pay an instalment would allow Cadogan to rescind the contract, "without prejudice to any accrued rights". The High Court ruled that the wording allowed Cadogan to retain the instalments which had been paid even though they did not acquire the assets in exchange.Stewart, H. and Clarke, A., Playing fair with penalty clauses, In-House Lawyer, December/January 2013/14, accessed 5 January 2024 The court referred to a text written by Jack Beatson, later a Lord Justice of Appeal, on Discharge For Breach: The Position of Instalments, Deposits and other Payments due before Completion, which Bernard Eder described as a "most valuable analysis" of the correct contractual construction of such payments.England and Wales High Court (Commercial Court), Cadogan Petroleum Holdings v Global Process Systems, 2013 EWHC 214 (Comm), delivered 15 February 2013, accessed 5 January 2024
An initial up-front partial payment for the purchase of an expensive items or service is often referred to as a "down payment"; this is also called a deposit in British English.
For U.S. tax purposes, cash payments generally are taken to occur at the time of payment. Payment may also occur when a person transfers property or performs a service to the payee in satisfaction of an obligation.See Donaldson, Samuel A., Federal Income Taxation of Individuals: Cases, Problems and Materials, 734 (2nd. Ed. 2007). A payment by cheque is normally deemed to occur when the cheque is delivered, as long as the cheque is honoured on the presentation by the payee. This rule also generally applies where the cheque is not presented to the bank until the next taxable year, even though the payer could stop payment on the cheque, in the meantime. Estate of Spiegel v. Commissioner, 12 T.C. 524 (1949). , however, are not considered payment when delivered. Griffin v. Commissioner, 49 T.C. 253 (1967). Generally, payments by credit card take effect at the point of the sale and not when a payer is billed by the credit card company or when the payer pays the credit card company's bill.Revenue Ruling 78-38, 1978-1 C.B. 67. A business that reports on an accrual basis, would report income in the year of sale though payment may be received in a subsequent year.
Payment of most fees to government agencies by cheque, if permitted, usually takes effect after a set number of days for Cheque clearing or until the cheque is actually cleared. Payments by credit card, if permitted, and cash payments take immediate effect. Normally, no other forms of payment are permitted or accepted.
Commercial late payments and interest entitlements arising from payment delay are regulated in some countries, for example in Member States of the European Union under the Late Payment Directives of 2000 and 2011.
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